Interest rate threat to licensed market

Interest rates are now reaching a level where they will directly affect the licensed property market - that's the view of Guy Simmonds managing director Stephen Taylor.

The Bank of England's Monetary Policy Committee unexpectedly raised interest rates to 5.25%, citing high inflation and the strength of the economy.

Taylor's view contrasts with Christie+Co's Colin Wellstead, who said last week the hike would not affect pub prices.

"We are not simply reflecting upon the latest rate rise of a 'mere' 0.25%. This is, of course, the culmination of a series of base rate increases, which stood at just 3.5% in November 2003. Effectively, this is a 50% increase from 2003 to the present day."

He added: "One should also remember that most businesses are borrowing typically at between 2% and 4% above this base rate. It is also significant that prior to these latest increases, many businesses, especially in the licensed trade, were struggling with increased overheads such as business rates, services, staff costs and rent."

Taylor warned that the trade may suffer a secondary impact if the domestic market starts to experience a slow-down because that is where licensed-business buyers usually emanate from.

"The increased borrowing costs will obviously impact upon all new purchasers of both freehold and leasehold businesses, assuming they are borrowing in order to fund their acquisition. Whilst the market is still buoyant, realism in price expectations is now a prerequisite in achieving a sale," he said.

"It is therefore essential for all vendors to obtain expert advice relating to the current market conditions, prior to placing any business on the open market."